The role of workfare in striking a balance between incentives and insurance in the labour market
Workfare policies are often introduced in labour market policies to improve the trade-off between incentives and insurance as an alternative to benefit reductions. Most of the debate on such policies has focussed on the direct effect of those participating in the scheme, and in particular the possible locking-in effect reducing job search. In a general equilibrium search framework, we show that the effects of workfare policies critically depend on the response of those not in the programme when they take into account that workfare is a condition for remaining eligible for unemployment benefits. This implies that unemployed not yet in workfare may search more for regular jobs, and employed may accept lower wages since the outside option becomes less attractive. Introduction of workfare policies into an unemployment insurance scheme is shown to contribute to a reduction in both open and total unemployment. It is also shown that the direct search effects of workfare policies are a poor indicator of the overall effect workfare policies have on labour market policies.
|Date of creation:||31 Mar 2008|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.econ.au.dk/afn/|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pavoni, Nicola & Violante, Giovanni L, 2006.
"Optimal Welfare-to-Work Programs,"
CEPR Discussion Papers
5937, C.E.P.R. Discussion Papers.
- Nicola Pavoni & Giovanni L. Violante, 2005. "Optimal welfare-to-work programs," Discussion Paper / Institute for Empirical Macroeconomics 143, Federal Reserve Bank of Minneapolis.
- Timothy Besley & Stephen Coate, 1995.
"The Design of Income Maintenance Programmes,"
Review of Economic Studies,
Oxford University Press, vol. 62(2), pages 187-221.
- Katherine Cuff, 2000.
"Optimality of workfare with heterogeneous preferences,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 33(1), pages 149-174, February.
- Katherine Cuff, 1998. "Optimality of Workfare with Heterogeneous Preferences," Working Papers 968, Queen's University, Department of Economics.
- Torben Andersen & Michael Svarer, 2007.
"Flexicurity – Labour Market Performance in Denmark,"
CESifo Working Paper Series
2108, CESifo Group Munich.
- Torben M. Andersen & Michael Svarer, 2007. "Flexicurity – labour market performance in Denmark," Economics Working Papers 2007-09, Department of Economics and Business Economics, Aarhus University.
- James Albrecht & Susan Vroman, 2005.
"Equilibrium Search With Time-Varying Unemployment Benefits,"
Royal Economic Society, vol. 115(505), pages 631-648, 07.
- James Albrecht & Susan Vroman, 2001. "Equilibrium Search with Time-Varying Unemployment Benefits," CESifo Working Paper Series 487, CESifo Group Munich.
- Fredriksson, Peter & Holmlund, Bertil, 2003.
"Optimal Unemployment Insurance Design:Time Limits, Monitoring, or Workfare?,"
Working Paper Series
2003:17, Uppsala University, Department of Economics.
- Peter Fredriksson & Bertil Holmlund, 2006. "Optimal unemployment insurance design: Time limits, monitoring, or workfare?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(5), pages 565-585, September.
- Peter Fredriksson & Bertil Holmlund, 2003. "Optimal Unemployment Insurance Design: Time Limits, Monitoring, or Workfare?," CESifo Working Paper Series 1019, CESifo Group Munich.
- Fredriksson, Peter & Holmlund, Bertil, 2005. "Optimal unemployment insurance design: time limits, monitoring, or workfare?," Working Paper Series 2005:13, IFAU - Institute for Evaluation of Labour Market and Education Policy.
- Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, vol. 82(1), pages 249-61, March.
- Claus Thustrup Kreiner & Torben Tranæs, 2003.
"Optimal Workfare with Voluntary and Involuntary Unemployment,"
EPRU Working Paper Series
03-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Aug 2004.
- Claus Thustrup Kreiner & Torben Tranas, 2005. "Optimal Workfare with Voluntary and Involuntary Unemployment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(3), pages 459-474, 09.
- Holzner, Christian & Meier, Volker & Werding, Martin, 2010.
"Workfare, monitoring, and efficiency wages,"
Munich Reprints in Economics
19396, University of Munich, Department of Economics.
- Kolm, Ann-Sofie & Tonin, Mirco, 2006. "In-Work Benefits in Search Equilibrium," Research Papers in Economics 2006:12, Stockholm University, Department of Economics.
- Brett, Craig, 1998. "Who Should Be on Workfare? The Use of Work Requirements as Part of an Optimal Tax Mix," Oxford Economic Papers, Oxford University Press, vol. 50(4), pages 607-22, October.
- Chambers, Robert G., 1989. "Workfare or welfare?," Journal of Public Economics, Elsevier, vol. 40(1), pages 79-97, October.
When requesting a correction, please mention this item's handle: RePEc:aah:aarhec:2008-05. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.